“Think of giving not as a duty but as a privilege.” (John D. Rockefeller Jr.)
Most businesses want to show appreciation to their employees at the end of a long year’s work, and the “Season of Giving” is the ideal time. A thoughtful gift will make any employee feel more recognised and appreciated, and this will improve morale and enhance perceptions about the company and could even increase employee satisfaction and loyalty.
SARS, however, considers almost any kind of gift to employees as a taxable fringe benefit, and therefore companies need to check with their accountants before giving, to ensure the tax implications are fully understood and taken into consideration.
What does SARS regard as gifts?
Any asset, commodity, goods or property of any nature provided by the employer to the employee at no cost, or a cost which is less than the market value of that item, is regarded as a taxable benefit in the hands of the employee, as per Paragraph 2(a) of the Seventh Schedule to the Income Tax Act.
This means that any gift that can be regarded as an asset will be subject to employees’ tax – whether physical or intangible, and regardless of the value, because there is also no minimum value below which gifts from an employer are exempt from tax.
Furthermore, the gift will be taxable even if the gift is given to an employee’s family member, such as a partner or a child.
Also remember that the onus of proof lies with your company should SARS challenge the tax treatment of any gifts to your employees.
Tax on common employee gifts
Tangible gifts, such as watches or electronic devices, will be taxed in the hands of the employee based on its market value, or on the cost to the employer.
Intangible gifts such as flights, bus tickets or accommodation are also considered as taxable benefits to the employee and the cost to the employer is the taxable amount.
Gift cards and vouchers are among the most popular gifts for employees, but beware! These are taxed at the same rate as if it the employee received cash. In some cases, it may be better to gift cash instead of a card or voucher that would limit the employee to a single retailer or outlet.
Similarly, bonusses are taxed at the same rate as other remuneration. This means that the amount of the bonus will be added to an employee’s annual salary when the rate of tax payable for the year is determined. The danger here is that the bonus amount might push some employees into a higher tax bracket.
How must the tax be deducted?
Depending on the nature of the gift, employers will need to determine the cash equivalent, or the market value, or the cost to the company to calculate the employee tax that must be deducted.
This can be quite complex, for example, the value of a benefit where accommodation is provided depends on whether the company owns the property or rents it, as well as whether or not the employee pays towards the accommodation.
The taxable amount calculated must then be reflected as a fringe benefit on the employee’s payslip, and PAYE must be determined and deducted. The benefit must also be declared on the employee’s IRP5/IT3(a) certificate.
Some exceptions?
There may be some possible exceptions, for example, if a gift to an employee does not involve any cost to the employer or where the employee gifts are used for business purposes.
An end-of-year function – whether a lunch celebrating the year’s achievements, or a team-building experience with snacks and refreshments, or a Festive Season office party with employees and their partners – is also a great way to treat your team with a delicious meal and complimentary drinks in a fun and social setting. The food and drinks will be tax-deductible expenses, regarded as a non-taxable occasional meal.
Paid time off work may also be an option that does not have tax implications for the employee.
An employer could also make a donation on an employee’s behalf as a gift. If an employer agrees to process a donation to a S18A-approved organisation through its payroll, such a donation can reduce the employee’s PAYE liability.
Professional advice is vital!
Whichever way your company decides to gift your employees, check with your accountant first to ensure it is both tax compliant and tax efficient.
“If you do not know where you are going, every road will get you nowhere.” (Henry A. Kissinger)
Creating a business plan is one of the most important processes when running a business. It is the roadmap for the success of any business and should include everything from cash flow planning to expansion strategies and the company’s mission statement. If you want to take out a loan a full-length plan is invaluable, but on a day-to-day basis these documents can be lengthy and difficult to access.
A one-page business plan is primarily a communication tool and is developed as a way to quickly summarise the key points of a business and its goals. It’s a great way to clearly define often complex issues in a simple manner and keep executives, partners or staff focused on the mission at hand. They are also a strong place to start when developing a full-length business plan and can help companies to pivot in changing times.
What should a one-page business plan include?
Your one-page business plan needs to include everything below, but resist going into the details. Keep each point to a few well focused sentences. Remove unnecessary words and adjectives.
The first thing to do is to simply describe the types of products and services that make up your business.
What problem are you solving for your customers? Why does your product or service exist? And why are these products or services better than those of your competitors? Avoid generalities and keep your answer focused.
This is where you look at the things that make you and your company perfect for your industry. What makes you stand out? Is it the team you have put together? Your business model or a unique invention?
This is the space for a three-point financial model. It should include your revenue sources, your company costs and the pricing strategy for your products. Again, avoid the specific amounts. This is not a budget. It simply points to where the money comes from and how it is spent in three sentences.
How do you get your product to your customers and how do you tell people about your business? What are your main sources for attracting new business? This is just a high-level overview on how you go about marketing and making sales.
In one line only, describe each of your major competitors and what makes their business a success.
This is your chance to look at the key figures you have hired to make your company a success. Who are the most important people and why are they important? This will help you to understand which of your employees should be earmarked for promotions or bonuses, and training.
What are the major things you may need funding for over the next few years? Why do you foresee the need for money in these areas?
Why are you doing this? What do you hope to achieve from your company and what is the end goal? While this is not included in a normal business plan, in your one-pager it can help act as a motivation and remind you why everything else exists.
“…imposing administrative non-compliance penalties is to ensure the widest possible compliance with the provisions of a Tax Act … they are imposed impartially, consistently and proportionately to the seriousness and duration of the non-compliance.” (SARS)
The Tax Administration Act stipulates that SARS can issue administrative penalties for outstanding tax returns.
In previous years, penalties were only imposed on taxpayers with more than one tax return outstanding. Since December, due to changes in the Tax Administration Act, SARS can apply administrative penalties to taxpayers who have a single outstanding return.
As a result, hundreds of thousands of South African taxpayers have received administrative penalties from SARS this year, many of them facing tax debt of tens of thousands of rands, accumulated over many years.
When are penalties incurred?
SARS can raise administrative penalties if a taxpayer is non-compliant in a specific area of their tax affairs, including Personal Income Tax (PIT) and Corporate Income Tax (CIT), Pay as You Earn (PAYE) or value-added tax (VAT).
A percentage-based penalty is imposed when a payment is received late. To prevent a payment from being received late, the payment must be received into the SARS bank account on or before the due date.
SARS also imposes fixed amount administrative non-compliance penalties for outstanding returns and/or non-compliance for PIT or CIT. These include the once off PIT penalty imposed where the taxpayer submitted a return late as from 2020 year of assessment onwards.
There is also a recurring penalty for the failure to submit a return for PIT and CIT. The fixed amount penalty is based on a taxpayer’s taxable income and can range from R250 a month (where there is an assessed loss or no taxable income) up to R16,000 a month (where the taxable income exceeds R50 million) for each month that the non-compliance continues.
For PIT, the recurring penalty is imposed where the taxpayer failed to submit an income tax return for years of assessment from 2007 onwards, when that person has one or more income tax returns outstanding.
For CIT, the recurring penalty is imposed where the company has failed to submit an income tax return for years of assessment from 2009, where SARS has issued the company with a final demand and the company failed to submit the return within 21 business days of the final demand.
As such, penalties are now applied monthly for tax returns dating back many years.
Companies also face administrative penalties for PAYE. If an employer has failed to submit an EMP501 reconciliation declaration on time, an admin penalty of 1% per month over 10 months, based on the employer’s liability over 12 months, is levied.
What are the costs of the penalties?
Percentage-based penalties are often steep, such as the 10% late payment penalty on VAT or PAYE, or the penalty of 1% over 10 months where an EMP501 was not submitted in time.
But it is the recurring penalties levied every month that really snowball. This is because SARS will keep penalising non-compliant taxpayers month after month until the outstanding returns are submitted, or up to a maximum of 35 months, if the taxpayer’s address is known, or 47 months if the taxpayer’s address is unknown.
Even at the lowest monthly admin penalty of R250, just one return outstanding for 35 months will have already racked up a tax debt of almost R9,000, not including interest.
Remember, unpaid penalties will also attract interest for each month they remain outstanding.
If you ignore Admin Penalty notifications from SARS, it will keep levying these penalties. In addition, the individual or company will have a non-compliance tax status. If a tax refund is due to the taxpayer, SARS will not pay the refund until any outstanding penalties are paid. Penalties can also only be offset against a refund after approval of a formal request to SARS.
Ultimately, if the admin penalty is not paid, SARS also can appoint an agent, such as a bank or employer, to collect the money on its behalf.
What should you do if you already have admin penalties?
If you have admin penalties, you need to do two things immediately:
Your accountant will be able to assist you with remedying the outstanding returns, including finding the outstanding documents, and the penalty payment. For example, if you are unable to pay any outstanding tax and penalties immediately, your accountant will help you enter into a repayment plan with SARS to pay it off.
However, if there were legitimate reasons for not filing an outstanding return, a taxpayer can dispute an administrative penalty through a request for remission to SARS for the penalty to be waived.
If you want to request a remission of the penalty from SARS, it is a good idea to rely on your accountant’s assistance. This is because a remission is only considered once the non-compliance has been remedied and where the taxpayer can show certain reasonable grounds, such as a first incidence non-compliance or if the duration of the non-compliance is less than five business days. Certain exceptional circumstances such as serious illness or accident, social disturbance or natural disasters will also be considered.
SARS says that administrative penalties will be “imposed impartially, consistently and proportionately to the seriousness and duration of the non-compliance,” so requests for remission are not always successful – or may result in only part of the penalties being reversed.
Avoiding penalties going forward
It has never been more important for individuals and companies to achieve and maintain tax compliance.
Taxpayers need to submit returns even if they are not earning an income and even if a company is dormant. In these cases, individuals and companies must submit zero returns to SARS or face mounting penalties. Where a company will remain dormant, consider deregistering the company with the Companies and Intellectual Property Commission (CIPC) and with SARS for the various types of tax.
When facing admin penalties now or in the future, the expertise and experience of your accountant or tax practitioner will be a key success factor in achieving and maintaining tax compliance.
“Always treat your employees exactly as you want them to treat your best customers.” (Stephen R. Covey, author of The Seven Habits of Highly Effective People)
Small businesses often lose their talent to large companies simply because they can’t afford the kinds of salaries and incentives on offer at a global corporate. Keeping staff happy is, however, critical for business success. Here are five employee incentives that really work to keep your staff happy, effective and engaged.
It costs nothing to offer employees the opportunity to set their own hours, and work when they are able. It also gives them the ability to look after families, run errands and still meet their work obligations – something larger companies may not be able to do.
In a recent survey, 92% of all employees say they are likely to repeat an action if they are recognised for it. Simple acknowledgement can be motivation enough, but if this is backed up with a real reward, like paid time off or a monetary bonus it can become even more effective.
These incentive programs offer two major benefits, firstly your employees get things they actually want instead of generic rewards creating more motivation and secondly, they allow you to closely tailor where, how and for what employees are rewarded. This means greater incentive can be given for things that move your business closer to its goals.
Ask your accountant for advice on structuring these incentives to be as beneficial and cost-effective as possible.
“The importance of the ability of taxpayers to challenge the legality of actions and decisions within the tax system is internationally recognised.” (Taxpayers’ Rights: Theory, Origin and Implementation)
In South Africa, taxpayers have the right to dispute tax assessments, interest, late payment penalties, and administrative penalties for various taxes, including Personal Income Tax (PIT), Corporate Income Tax (CIT), Value-Added Tax (VAT), and Pay-As-You-Earn (PAYE). This is done by submitting requests such as Request for Reason, Request for Late Submission (Condonation), Request for Remission (RFR), Notice of Objection (NOO), Notice of Appeal (NOA), and Suspension of Payment.
Recent changes to the procedures to lodge an objection and appeal against an assessment or decision aim to enhance the efficiency and effectiveness of tax dispute resolution. Here are the key changes:
What’s still the same?
“There are only two things in a business that make money – innovation and marketing, everything else is cost” (Peter Drucker, author)
Running a business is never cheap and starting one up may be one of the most expensive things you ever do. According to the U.S. Small Business Administration, most microbusinesses cost around R60 000 just to get to the point where you are ready to start operating. Clearly, larger businesses with extensive infrastructure would cost much more. While it’s easy to plan for obvious production costs, office equipment, marketing and even taxes, the hidden costs we list below may come as something of a surprise.
Depending on your industry there may also be licences and permits necessary to manufacture or sell your products. This is particularly relevant in the manufacture and supply of foods. Restaurants, hotels and B&Bs may also need permits to offer specific services and any business that wants to make use of natural resources, such as fish, water, or land will undoubtedly also need to pay for government permission. Health clinics, spas, nightclubs and many more will also have to find money to meet permit requirements.
Usually though, shrinkage will be in the region of 1% to 2% of turnover, which can add up. These losses come from customer thefts, employee fraud, administrative errors and damage, and need to be controlled, but the truth is, some will always sneak through and have to be accounted for in any business calculations.
Meanwhile, new stock must be purchased/developed and staff have to be paid. Taking loans to cover costs because of delays will result in interest payments, whereas monies held back to meet these payment requirements will mean that other investments or growth opportunities will have to be delayed. All of this incurs unexpected costs. It is therefore essential that you meet with your accountant to determine the most cost-effective way to meet your obligations and keep the company running.
No matter which bank you use, their services do not come free. Whether it’s structured through monthly account fees, transaction charges or interest on credit cards, businesses will end up paying a significant portion of their income to their financial service providers. Every bank will structure these costs differently, so it’s important for a company to find the one that best suits their way of doing business.
Working for someone else, it’s hard to imagine just how much the everyday office costs to run. Everything from toilet paper to paper clips, and printer paper costs money. Even if you aren’t offering free coffee and tea to employees, you can still expect to pay for cleaning supplies, software registration fees and the electricity bill at the end of the month. Individually these items don’t cost a lot, but added together they will amount to a significant extra burden each year.
Many business owners start their businesses based on their own knowledge and gut feel for their industries. This is generally a good starting point, but getting a company to thrive requires a solid knowledge of your market and your product’s key differentials. This takes market research, and this isn’t free.
You do not necessarily have to hire an expensive consultancy to do the market research for you and can choose to instead do it in-house through emails and phone calls. Whichever way you go, however, it will take money, and time, both of which are valuable resources you may not have accounted for.
Entrepreneurs know of course that they will have to pay the staff they employ. They probably also know that each employee costs the company more than their simple salary. What they may not take into account is that hiring someone costs money and training them up to standard costs even more.
Hiring someone may well require you to either contact an agency or pay to put adverts online. Then there is the process of vetting CVs, conducting interviews and ultimately bringing someone on board. All of this costs money as does the time, and equipment needed to train them for their position.
Building a successful company will also require you build a recognisable brand. This takes proper logo and website design alongside copywriting fees for working brand slogans, corporate values and web content. All of this costs money, but without it, you can’t expect to maximise your profits.
In order to ensure you aren’t surprised by unanticipated business expenses, there is one other cost you should always budget for – an accountant. Your accountant will be able to help you make the crucial decisions that stretch your money as far as possible each month while ensuring you aren’t tripped up by these hidden costs.
“People are not your most important asset. The right people are.” (Jim Collins, author, speaker and consultant)
Knowing whether to hire a freelancer or full-time employee for any particular role is vital for the successful running of a modern business. With budgets constantly being constrained and the pressure to perform going up, ensuring you maximise your workforce is absolutely essential if you want to build a successful company.
Here is our quick guide to help you decide whether the roles in your company should be filled by a full-time employee or a freelancer.
When to bring on an employee
When to bring on a freelancer
“The only thing worse than training your employees and having them leave is not training them and having them stay.” – (Henry Ford, Founder, Ford Motor Company)
In a world where everything seems more expensive today than it was yesterday training and advancement of staff can seem of lesser importance. As an increasing number of studies show, however, this could not be further from the truth. A lack of training at businesses can lead to decreasing quality of service, high employee churn rates, and more recently, an inability to match more technologically savvy competitors in the market.
In 2024, speak to your accountant to budget for the advancement of your employees and the development of skills within your organisation. Businesses who fail to bring these skills on board, whether through training or additional hires, are guaranteeing tough times ahead.
Like Excel in the 2000s this is the one skill every office employee will need to have over the coming years. At the moment, prompt engineers are commanding enormous salaries for their understanding of just which commands are genuinely helpful when dealing with AI. It’s all very well having the latest technology, but if you are unable to unlock its potential then you are wasting the investment and falling behind every day.
Ironically, in an era where AI is capable of producing a facsimile of good writing in a matter of minutes, genuine heartfelt, creative and original communication is going to become even more critical. Ensuring you have employees who are capable of identifying communication opportunities, and actively translating the insights of AI into easily understood, actionable and motivational text will be the difference in a world littered with paint-by-numbers ChatGPT blog posts and internal emails.
As the world moves increasingly digital and automated it also becomes more vulnerable to cyber-attacks. Online threats can cripple companies and put them out of commission for weeks if not months, and lost information can be very hard to retrieve. While it is imperative that your company has experts employed who understand the threats, each and every employee should also be trained in the basics and potential loopholes that criminals will exploit. Failing to train in this area will no doubt lead to far greater costs down the line.
Managing a team requires a completely different set of skills to just ten years ago. With most jobs incorporating at least a percentage of remote work, and freelancers becoming an integral part of projects, managers need to be up to date on a number of new communication and management apps and solutions. Additionally, they need to know how to motivate and communicate effectively online and develop teams from people located around the world.
In the modern era of online reviews and social media, customer service has never been more important. Now, one bad experience doesn’t disappear, but instead lives with a company online forever. As a result, it’s critical that staff be trained in how to keep customers happy, how to handle a disgruntled customer and, when the odd bad reviews inevitably come in, how to turn them around to the company’s advantage.
